BLBG:Treasuries Fall As Australia GDP Spurs Optimism On Growth
Treasuries fell for a third day as a pickup in Australian gross domestic product growth spurred optimism the global economy can withstand Europe’s debt crisis, curbing demand for the relative safety of U.S. debt.
Government securities are tumbling this week on speculation the pace of expansion won’t justify keeping yields at the record lows set June 1. Officials from the world’s largest economies agreed to coordinate their response to Europe’s financial crisis on a conference call yesterday. The cost of insuring bonds in Asia and the Pacific from default fell and stocks in the region rose as investors sought assets other than sovereign debt.
“The rally is pausing,” said Hideo Shimomura, who helps oversee the equivalent of $76.1 billion in Tokyo as chief fund investor at Mitsubishi UFJ Asset Management Co., a unit of Japan’s biggest publicly traded bank. “Australian GDP was surprising. It’s a good indicator for the world.” Mitsubishi UFJ trimmed its holdings of Treasuries on June 4 after yields tumbled to records, Shimomura said.
The 10-year yield increased one basis point, or 0.01 percentage point, to 1.59 percent as of 7:02 a.m. in London, according to Bloomberg Bond Trader data. The 1.75 percent note maturing in May 2022 dropped 1/8, or $1.25 per $1,000 face amount, to 101 15/32. The all-time low yield reached June 1 was 1.4387 percent.
Australia Growth
Australia’s economy expanded 1.3 percent in the first quarter, a government report showed, more than twice the pace projected by a Bloomberg News survey of economists. The benchmark 10-year yield in the South Pacific nation increased eight basis points to 3.02 percent. It has climbed from the record low of 2.70 percent set June 4.
The yield on Japan’s five-year debt was little changed at 0.21 percent.
The Markit iTraxx Asia index of credit-default swaps covering 40 investment-grade borrowers outside Japan declined three basis points to 202 basis points, set for the lowest close this month, according to Credit Agricole and CMA prices.
Credit-default swap indexes are benchmarks for protecting bonds against default, and traders use them to speculate on credit quality. A drop signals improving perceptions of creditworthiness, while an increase suggests the opposite.
The MSCI Asia Pacific Index (MXAP) of stocks advanced 1.2 percent, heading for its first two-day gain in a week.
G-7 Coordination
Group of Seven officials said they will work together to help both Spain and Greece place their public finances on a sustainable footing, Japan’s Finance Minister Jun Azumi told reporters in Tokyo following the call yesterday.
Treasuries fell yesterday as the Institute for Supply Management’s index of non-manufacturing businesses, which covers about 90 percent of the economy, rose to 53.7 in May from April’s 53.5.
The number of Americans making initial applications for jobless benefits probably fell by 5,000 to 378,000 last week, according to median estimate of economists surveyed by Bloomberg News before the Labor Department releases the data tomorrow.
Tsutomu Komiya, who helps oversee the equivalent of $111 billion as an investor in Tokyo at Daiwa Asset Management Co., a unit of Japan’s second-biggest brokerage, said he’s not ready to bet against Treasuries.
“Yields will hover at these low levels this year,” Komiya said. “The U.S. still has problems. The European problem will take a long time to solve.
Federal Reserve Bank of Chicago President Charles Evans said yesterday that economic data have been ‘‘on the soft side,’’ warranting ‘‘extremely strong accommodation.’’ Evans doesn’t vote on monetary policy this year.
Fed Policy
Fed Chairman Ben S. Bernanke is scheduled to speak tomorrow on the outlook for the U.S. economy, as the central bank winds down the debt-extension program it is using to support the economy.
The Fed is replacing $400 billion of shorter-term Treasuries in its holdings with longer maturities by the end of this month to keeping borrowing costs down. It plans to buy as much as $2.25 billion of Treasuries due from February 2036 to May 2042 today as part of the effort, according to the Fed Bank of New York’s website.
Morgan Stanley, one of the 21 primary dealers of U.S. government securities that trade with the central bank, said June 1 that the probability of the Fed adding further stimulus is 80 percent, up from 50 percent. A Labor Department report that day showed the U.S. added 69,000 jobs in May, less than half the number projected by a Bloomberg survey of economists.
The European Central Bank will probably keep its benchmark interest rate at 1 percent at a policy meeting today, a separate Bloomberg poll shows.
Chungkeun Oh, who invests in bonds in the biggest markets for Industrial Bank of Korea (024110), South Korea’s largest lender to small- and medium-sized companies, said he bought Treasuries in May and stopped in June.
‘‘I don’t think yields will go deeply lower,” Oh said. “They have already priced in all the bad news from the economy and the Europe political issues.”
To contact the reporters on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net. Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net.
To contact the editor responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net.
